A new surprise is coming with the publication of earnings by UniCredit, the Italian bank led by CEO Andrea Orcel?
While waiting for the start of the earnings season in Piazza Affari, the analysts reel off their opinions forecasts on the accounts of Italian banksreturning from an excellent 2023, thanks to the huge support coming from the increases in anti-inflation rates launched by Christine Lagarde’s ECB.
UniCredit was a major player on the stock market, with the title (UCG) which he secured in Piazza Gae Aulenti an excellent place in the Ftse Mib heavyweight ranking.
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It was indeed queen among the Italian banks of 2023 UniCredit, thanks to the trust that investors continued to place in the strategy launched by CEO Orcel, focused on an increasingly rich capital distribution policy to shareholders.
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UniCredit and the other Italian banks: the report signed by Barclays
How it will have gone for UniCredit in the last quarter of 2023, in view of a year, the current onewhere it is unlikely that the hangover of both profits and buys on Italian bank stocks will be repeated?
Barclays has published an ad hoc report dedicated to the preview of the accounts of Italian credit institutions: “Italian Banks, Testing the resilience: what to watch for in Q4 results”.
In general, looking at the entire banking sector, analysts wrote in the report that, in their opinion, “the relative net interest margin to the fourth quarter of 2023 – the budget item that benefited most significantly from the effect of the monetary tightening launched by the ECB – it will be solid, 2024 EPS guidance will be confirmed, and statements regarding shareholder compensation (in the form of buybacks or dividends) will be marked by optimism.”
This is what it generally foresees the same consensus.
Accordingly, Barclays writes that the reactions of Italian bank stocks they will depend on all those factors that will protect the “credibility” of the EPS.
Together with Intesa SanPaolo, UniCredit is among the banks in which Barclays has the most confidence.
Eps of Italian banks and UniCredit in 2024-2025: Barclays’ moves
In the case of UniCredit, an element that could impact the share trend would be represented by possible announcements about costs and any savings that the bank would be able to set aside.
Barclays analysts meanwhile have UniCredit EPS estimates for 2024 revised upwards, from the previous 4.90 euros per share at 4.96, therefore 1%.
Downgrade on earnings per share, however, for 2025, which in this case is expected by analysts at 4.91 euros, lower than previous estimates, equal to 5.05 euros per share, by 3%.
Referring to all Italian banks, the experts underlined in the analysis of having revised the outlook on earnings per share downwards, in media, by 0.1% for 2024 and 2.6% for 2025:
the move was motivated by “updating our models, which now reflect rate estimates developed by our macro team”.
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UniCredit: NII outlook, net profit, turnover & Co
Having said that, returning to the budget results that UniCredit achieved in the fourth quarter of 2023, Barclays said it expects a net interest margin (NII) down 1.3% quarterly but up 4% year-on-year, equal to 3.552 billion euros, compared to 3.6 billion in the third quarter and 3.415 billion euros in the fourth quarter of 2022.
Similar Equita’s expectations, what an esteem an NII interest margin of €3.6 billion, down by 1% on a quarterly basis and growing, also in this case, by 4% on an annual basis.
Da Barclays net profit is expected at 1.557 billion, down 33% on a quarterly basis compared to 2.322 billion in the third quarter of 2023 and down 37% compared to 2.464 billion in the fourth quarter of 2022.
Equita analysts expect a lower net profit for the group led by Orcel, equal to 900 million while, more generally, Bloomberg’s consensus is for a GAAP net profit of 933 million euros, for the quarter ending December 31, 2023.
The turnover of Piazza Gae Aulenti Barclays is expected to decline 3% on a quarterly basis to 5.761 billion, compared to 5.967 billion in the third quarter of 2023 and up 1% year-on-year, compared to 5.715 billion in the fourth quarter of 2022.
More pessimistic estimates are those of Equita, which is aiming for total revenues in the fourth quarter of 2023, equal to €5.6 billion, down 6% on a quarterly basis and 1% on an annual basis.
The Bloomberg consensus is for revenues at 5.527 billion.
Fourth quarter 2023 operating profit is expected from Barclays to 3.215 billion, down 12% compared to 3.640 billion in the third quarter of 2023, and down 1% compared to 3.246 billion in the fourth quarter of 2022.
Equita predicts a lower operating profit of €3.1 billion, down 15% on a quarterly basis and 5% on an annual basis.
Analysts polled by Bloomberg predict an operating profit further decreasing, to 2.953 billion.
Per Barclays, provisions are expected to grow to 532 million, from 135 million in the fourth quarter of 2023, however almost unchanged compared to the 528 million in the last quarter of the previous year.
Fair esteem LLPs amounting to 600 million euros.
Barclays always predicts commissions up for UniCredit by 1.2% on a quarterly basis and down by 0.8% on an annual basis, while UniCredit’s cost of risk is estimated at 50 basis points, up from 13 basis points in the third quarter of 2023.
In general, Equita writes in its preview that it estimates for the fourth quarter of 2023 “a declining revenue dynamic on a quarterly basis, with revenues and commissions essentially stable on a quarterly basis and a lower contribution from trading”.
“Also in light of the renewal of the national banking contract – continues the Milanese SIM – we estimate operating costs to grow by 9% on a quarterly basis, with the C/I which should however remain at a good level in the 45% area.
“Below the operational line, we believe UCG can spend more LLPsalso from a proactive perspective in view of 2024, with an expected cost of risk in the area of 58 basis points aimed at further increasing coverage levels”.
Equita adds in today’s note dedicated to the group’s earnings preview that, “as expected, the fourth quarter of 2023 will also be a quarter impacted by significant integration costs, aimed at optimizing the group structure and limiting the inflation of operating costs (also due to the renewal of the national banking contract in Italy) in the coming years. Integration costs are expected to amount to 76 million euros during the last quarter of 2023.”
The outlook for the full year 2023 of the Milanese SIM is “a DTA net profit (the release of which is not factored into our estimates) at €7.6 billion”, 2% lower than the previous outlook, which still exceeds the guidance given by Orcel of a “net profit equal to or greater than €7.25 billion”.
“The slight revision compared to the previous estimate is largely attributable to an increase in integration costs over the year, from €855 million to €1.030 billion”.
Stock outlook: UCG’s target prices and ratings. Dowside and upside scenario
With regard to Equita’s estimates for the two years 2024-25 the target price on the UniCredit stock was confirmed at 31 euros per share (P/E = 6.4x, P/TE = 0.87x with ROTE = 13.5% in 2025). Today the shares show an increase on Piazza Affari of more than half a percentage point and are traded around 26.60 euros.
Equita’s rating is “buy”, given that UniCredit shares, SIM explains, are traded at a P/E ratio relating to 2025 of 5.5 times and a P/TE of 0.76 times, in a context in which the forecasts are of a distribution to shareholders exceeding 25% of market capitalization (via dividend and buyback).
For its part, Barclays confirmed the overweight rating on UCGrevising upwards the target price from the previous 32.70 to 33.50 euros, with an upgrade therefore equal to +2%.
Barclays motiva il rating “overweight” with the “guidance of the company and the trend of turnover and costs”.
The bank also mentions the presence of a margin of increase for stocks based on a PE of 9 times.
“This margin – he underlines – could arise if UCG distributed a higher than expected remuneration to shareholders or if the group showed a greater ability to sustain turnover growth”.
In the case in question of the upside case, the UniCredit stock according to Barclays it could even jump to 43.60 euros.
But it also exists un downside case, always signed by Barclays, based on a PE equal to 5 times, which could manifest itself for the shares of the bank led by CEO Andrea Orcel if the solidity of the balance sheet were in some way affected by the fears related to the possible options of possible M&A operations. Merger and acquisition operations whose pursuit, it must be said, has never been a priority for CEO Andrea Orcel.
In this downside case scenario, the UniCredit stock could fall as expected up to 21.80 euros.
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